Learning Materials For Accounting, Management , Finance And Economics.

Wednesday, February 16, 2011

Concept And Formula Of Labor Efficiency Variance

Direct labor efficiency variance is the difference between the labor hours specified for the activity achieved and the actual labor hours expected for a predetermined level of output. It is also called time variance, which is the result of taking more or less time than the standard time specified for the performance of the work.

Formula For The Calculation Of Labor Efficiency Variance (LEV)

LEV = SR x (ST-AT)
Where,
LEV = Labor efficiency variance
SR = Standard rate
ST = Standard time
AT = Actual time

OR, LEV = LMV+LYV+LITV
Where,
LMV = Labor mix variance
LYV = Labor yield variance
LITV = Labor idle time variance

If the actual time is less than the standard time, there will be favorable variance and if actual time is more than standard time, there will be unfavorable variance.